1. What is a Floor Clause? (Cláusula Suelo)
Many property buyers in Spain were sold mortgages by Spanish Banks at a variable rate linked to the Euribor (the Eurozone base rate). However, a large number of those mortgages also included a ‘floor’ (Cláusula Suelo) which was normally set anywhere between 2.5% & 4.5%. Most consumers were unaware that the Floor Clause was included in the small print of their mortgage. Even as the Euribor fell during 2009 to 2016 to a record low in the wake of policy easing from the European Central Bank, mortgage holders continued paying additional interest due to the effect of the Floor Clause in their mortgage.
2. Is the Floor Clause illegal?
The Floor Clause was ruled illegal due to lack of transparency by the Spanish Supreme Court in May 2013. The Court said that the Floor Clause was unfair because consumers had not been properly informed of the consequences of such a clause. Banks were ordered to refund the overpaid interest, but only from the date of the Supreme Court Sentence in May 2013 and not from the time the Euribor began to fall rapidly during 2009.
3. How do I know if I have a Floor Clause in my mortgage?
If your monthly mortgage payments have remained at the same amount over the past few years then it is likely that you have a Floor Clause applied to your mortgage. We can check this for you.
4. What has the European Court of Justice said in its Judgment of 21 December 2016 on Mortgage Interest Floor Clauses?
The European Court of Justice (ECJ) has ruled that if a Spanish Court declares the Floor Clause as abusive and therefore null and void, the consequences of this are that the Bank must refund ALL the overpaid interest from the start of the mortgage and not only since the Spanish Supreme Court ruling in May 2013.
In its decision the ECJ stated that “The finding of unfairness must have the effect of restoring the consumer to the situation that the consumer would have been in if that clause had not existed. Consequently, the finding that ‘floor clauses’ are unfair must allow the restitution of advantages wrongly obtained by the Bank to the consumer’s detriment.” With regards to the Supreme Court ruling that the refund of interest only applies from May 2013 onwards the ECJ stated “Such a limitation makes consumer protection incomplete and insufficient and is not an adequate and effective means for preventing the use of unfair terms.”
5. Does the Floor Clause still need to be declared null and void by a Court?
Yes, or it must be acknowledged as such by the Bank. All the main Spanish Banks removed their Floor Clauses after the Supreme Court decision in May 2013. Only two large banks maintained them: Sabadell and Liberbank, although several savings and rural banks also keep them.
6. Can the Bank still refuse to remove the Floor Clause and refuse to refund the overpaid interest?
Yes, it can. The Bank may try to “persuade” you to sign an agreement by which you agree that the Floor Clause is removed in return for waiving your right to receive a refund of the overpaid interest. We would strongly advise against entering into such an agreement with your Bank.
In our opinion, these agreements even if already signed are also null and void and a new claim for a refund of the overpaid interest is possible.
7. Does this affect mortgage customers of all Banks?
It affects mortgage customers of all Banks except BBVA, Abanca (Novagalicia) and Cajamar, whose cases have already been decided by the Supreme Court. This is due to the application of the legal situation of “res judicata” (matters which have already been decided by Courts and cannot be judged again). However, some Courts have ruled recently that “res judicata” does not apply in these cases.
8. What difference will the removal of the Floor Clause make and how much am I likely to receive as a refund of overpaid interest?
We would need to review your mortgage documents to give you exact figures.
However as an example:
If you took out a 130,000 Euro mortgage in 2006 over 30 years at an interest rate of Euribor + 1% and had a Floor Clause of 4.25%, your monthly mortgage payments with the Floor Clause would be around 675 Euro. If the Floor Clause was removed then currently you would pay around 475 Euro per month, a saving of around 200 Euro per month. The overpaid interest on the above example would amount currently to around 15,000 Euro.
We can give you an accurate appraisal of your particular case after reviewing your mortgage documents.
9. Will the Spanish government implement a general procedure for the removal of the Floor Clause and refund of overpaid interest without consumers having to file Lawsuits in the Courts against their Bank?
We are waiting for an announcement from the Spanish Government. However, it is looking likely that this issue may have to be dealt with on a case by case basis.
Therefore, if you have not seen any reductions in your monthly mortgage payments over the past 7 or 8 years then it is likely that you have a Floor Clause applied to your mortgage.
Contact us now and we will review your mortgage, negotiate with your bank for the removal of the Floor Clause together with a refund of all overpaid interest and, if necessary file a Lawsuit against the Bank.
Islantilla (Huelva, Costa de la Luz, South western Spain)